Jumping to the buy-side is no easy task. Most hedge funds, private equity firms and alternative asset managers interview a tiny percentage of candidates who apply and only hire a select few who actually make it through the door. While the interview process is different at every company, buy-side firms are known to ask some off-the-wall brainteasers to go along with more traditional interview questions.
We’ve compiled a selection of each style below. They are actual questions that were asked by buy-side firms of junior and mid-level candidates, who then shared them with us. How would you do?
- If you are McDonalds, which is better: A 5% increase in the price of all existing products (assuming price inelasticity) or a 5% increase in total volume as a result of a new product?
- If I ask you to research a company, what is the first thing you’ll look at: cash flow, income statement or a balance sheet? Why?
- What will you do if the stock falls 20% after one month of your buy recommendation?
- So you play poker. What are the odds of flopping a flush if you have two cards of the same suit? What if there is $200 in the pot and the guy ahead of you bets 40. Do you call? How many people must call before you to have good, "pot odds"?
- What ratios would you analyze to understand the liquidity, the efficiency and the profitability of a company?
- What kind of financial modeling have you done in the past?
- Let’s say I have two envelopes. And I tell you that one has twice as much as the other one. You open the first one and it has $100. You may open the second one but you forfeit the $100. What do you do?
- You work on the sell-side. Why do you want to join the buy-side?
- There are two companies in the same industry. One increases price and the other invests to increase production capacity. Which one would you rather invest in?
- Tell me about a piece of feedback that surprised you?
- What are the main reasons that the market is up this year?
- News breaks that a public company that you cover is about to acquire a private company. Your phones start to ring. On one line is your trader, on the other is your top institutional investor. Which phone do you answer and why?
- What are some of the weaknesses of a PE (price-to-earnings) valuation?
- Given the cost of production is $10 for one company and $40 for another, both with revenues at $50, given P/E at 1x. If one more cycle of cost-revenue goes by, which company should you invest in?
- Tell me about your worst investment decision.
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